Enhancing Supply Chain Resilience: Interplay of Process Flexibility and Excess Capacity

Enhancing supply chain resilience has become a prevalent research topic following the widespread product shortages during the pandemic and other environmental shocks. How plant disruptions impact supply chains and how to redesign mitigation strategies considering supply disruptions remain essential questions to answer. We focus on a production network managing several plants and product lines, confronted with demand uncertainties and random plant disruptions of varying frequency and length. We seek to minimize lost sales using process flexibility and excess capacity. Process flexibility lessens product mix mismatches, while excess capacity tackles long-term and systematic demand variations. We choose several flexibility and capacity configurations and build an optimization model to determine the optimal demand allocation quantity. Our numerical experiments show that a long chain configuration with 5% excess capacity per plant reduces lost sales between 34.4% and 56.5% when compared with a balanced dedicated system when plants are susceptible to disruptions.